SANTA FE ENERGY TRUST TAX INFORMATION REPORTING BOOKLET

Transcription

1 SANTA FE ENERGY TRUST (E.I.N ) TAX INFORMATION REPORTING BOOKLET 2007 This booklet contains income tax reporting information necessary to complete 2007 Federal and State income tax returns.

2 Santa Fe Energy Trust 2007 Tax Information Reporting Booklet TABLE OF CONTENTS Note to Unitholders... 1 General Information:... 3 Reporting of Income and Deductions... 4 Direct Ownership Reporting... 4 Types and Reporting of Trust Income and Deductions... 4 Purchase Price Allocation... 6 Gain/Loss on Units Sold... 6 Gain/Loss on Sale of an Interest in the Net Profits Royalties... 6 Tax Shelter Registration... 7 Computation of Depletion... 7 Reconciliation of Net Income and Cash Distribution... 8 Adjustments to Basis... 8 Portfolio Income... 8 Administrative Expenses... 8 State Income Tax Returns... 8 Worksheets... 9 General Information - Worksheets Worksheet 1 - Calculation of Reportable Amounts Calculation for IPO Unitholders Worksheet 1 Sample Solution Worksheet 2 - Calculation of Reportable Amounts Calculation for All Other Unitholders Worksheet A - Purchase Price Allocation Instructions Calculation of Purchase Price Table of 2007 Relative Fair Market Values Worksheet B - OID Income Calculation Instructions Calculation of OID Income Table of 2007 Taxable OID Factors Worksheet C1 - Cost Depletion Calculation Table of 2007 Cost Depletion Rates Per Unit Worksheet C2 Percentage Depletion Calculation 23 Table of 2007 Gross Net Profits Royalty Income Per Unit Worksheet D - Calculation of Basis Worksheet E - Gain/Loss on Sale of Units Instructions Calculation of Gain/Loss Allocation of Sales Proceeds Worksheet F1 Sale of an Interest in the Net Profits Royalty Worksheet F2 Sale of an Interest in the Net Profits Royalty Worksheet G - State Tax Allocation... 30

3 TABLE OF CONTENTS Tables Royalty Income Per Unit Ad Valorem Taxes Per Unit Interest Income (Production Payment) Per Unit Trust Administrative Expenses Per Unit Cash Reserves Per Unit Cash Distributions Per Unit A Equivalent Barrels Per Unit Attributable to Net Profits Royalty Income on Oil B Equivalent MCF Per Unit Attributable to Net Profits Royalty Income on Gas... 35

4 To Present and Former Unitholders: This tax information reporting booklet is intended to provide information required for Unitholders to determine the federal and state taxable income relating to ownership of Units in the Santa Fe Energy Trust (the Trust) during It is being mailed to all persons who appeared on the Trustee s records as Unitholders at any time during As such, the information provided herein may be relied upon only by Unitholders appearing on the Trustee s records for the Trust for This booklet is prepared for use by individuals who are citizens or residents of the United States. Accordingly, it has limited application to corporations and persons subject to special federal income tax treatment, such as taxexempt entities and foreign persons. This information is provided by Devon Energy Corporation (successor by merger to, Santa Fe Snyder Corporation, formerly known as Santa Fe Energy Resources, Inc.) and the Trustee with the understanding that neither Devon Energy Corporation nor the Trustee is engaged in rendering legal, accounting or other professional service. Therefore, Unitholders should consult their own tax advisor with respect to their particular circumstances. The date of acquisition or sale of your Units determines which worksheets in this booklet should be used. Worksheet 1 should be used by Unitholders who purchased their Units in the initial offering on November 19, 1992 and held such Units through December 31, Worksheets C1, C2, D and F1 & F2 should also be completed. The resulting amounts should be reported on Form 1040, U.S. Individual Income Tax Return, on the lines indicated. Worksheet 2 should be used by Unitholders who acquired Units after the initial offering. In addition, Worksheet 2 should be used by any Unitholder who sold Units during Worksheets A through F2 should also be completed. The resulting amounts are reportable on Form 1040, U.S. Individual Income Tax Return, on the lines indicated. Worksheet G is provided to assist all Unitholders in determining the appropriate amounts to be reported for state income tax purposes. As previously announced by the Trust, the Trustee has been informed by Devon that Devon believes it overpaid the Trust during the 2006 and prior years for its net profits interest royalties. Payments were made during 2007 to Devon for the prior years' overpayments. The amount of the overpayment, and impact on quarterly distributions to Unitholders, is disclosed in the quarterly distribution announcements and the financial statement reports (SEC filings) of the Trust. The repayments to Devon have been reported in this booklet as part of the administrative expenses for the year (Table 4). You may have received Form 1099 related to one or more types of income generated by your broker or the Trust. Beginning in 2007 the Trust is required to complete Forms 1099 for Unitholders who do not hold their units through a broker or other middlemen. The Trust will be providing Forms 1099 as required under these new reporting requirements. These Forms 1099 are based on the same information provided in this booklet. Therefore 1

5 the information contained on the Forms 1099 provided by the Trust will correspond to the income information reported in this booklet. The Trustee recommends all unitholders use the worksheets contained in this booklet to correctly calculate and report 2007 taxable income amounts related to the Trust as information reported on Forms 1099 do not reflect all necessary information to calculate taxable income. A computer software version of this reporting package was developed to aid Unitholders in obtaining and determining their tax information. The Trust will calculate for you the tax information related to your Units for the current year and each year that you held them with the relevant information that you provide. For Unitholders who purchased their Units prior to 2007, this software version calculates reportable amounts based on the respective reporting booklets for those years. The calculations in this version assume that in prior years, reportable amounts calculated by the Unitholders were pursuant to the directions provided in the Tax Information Reporting Booklets and that the information submitted to the Trust by the Unitholder is accurate and complete. If you should request this service from the Trustee, the information generated is intended to help you determine your tax liability and not to render professional advice. Moreover, the tax information generated does not take into account your other particular tax attributes and tax circumstances. Accordingly, you should consult your own advisor regarding the determination of the actual tax implications of your ownership of Trust Units prior to the preparation of your income tax returns. In December 2007, letters soliciting Unitholder information were sent to the Unitholders on file. If you were not part of that mailing or missed the information request due date and would like to take advantage of this resource, please send a postcard to the following address: Santa Fe Energy Trust 919 Congress Avenue, Suite 500 Austin, TX You will need to include your name, address and tax identification number on the postcard. In addition, you will need to include the following information for each separate purchase and sale of a block of Units: - date of each such purchase - purchase price paid in each such purchase, including commissions - number of Units purchased in each such purchase - number of Units sold in each such sale, if any - sales price received in each such sale, if any - date of each such sale, if any, and - statement of whether or not you are eligible for percentage depletion (see discussion in Section 2 of General Information ). If you have any questions concerning this booklet or the software version, please call (512) The Bank of New York Trust Company, N.A., Trustee 2

6 GENERAL INFORMATION 3

7 GENERAL INFORMATION 1. Reporting of Income and Deductions (a) Direct Ownership Reporting. Each Unit consists of an interest in the Santa Fe Energy Trust and an interest in a U.S. Treasury Obligation. The Santa Fe Energy Trust (the Trust) is classified as a Grantor Trust for federal income tax purposes. Unitholders are taxed on their share of the Trust s income and expenses. Unitholders are also taxed on their share of the original issue discount income attributable to the Treasury Obligations. The Trust reports its income and expenses on the cash basis of accounting using a calendar year. The Trust makes quarterly cash distributions to Unitholders of record on each quarterly record date. Taxable income is allocated to Unitholders receiving distributions. Income and expenses attributable to the assets of the Trust and Treasury Obligations should be taken into account by the Unitholders consistent with their method of accounting and without regard to the taxable year or accounting method employed by the Trust. Worksheets and instructions are provided, beginning at page 9, to help you calculate your appropriate share of income and expenses to be reported to the IRS. (b) Types and Reporting of Trust Income and Deductions. (i) Royalty Income - The Trust holds Royalty interests in oil and gas properties in 11 states. Royalty income is received by the Trust quarterly. Table 1 reports the amount of Royalty income for each Unit held for the period indicated. You may have received a Form MISC reporting Royalty or miscellaneous income. If you received a Form MISC, the income amount may not reflect your taxable income since such amount may not equal your allocable share of the Trust s income and deductions. Compute the correct taxable income to report on your tax return by completing the appropriate schedules in this package. (ii) (iii) Ad Valorem Taxes - Ad Valorem Taxes are reported in Table 2 for each Unit held for the period indicated. Production Payments - The Trust generates interest income from the production payments associated with certain properties. Under a production payment, the Trust is treated as having made a mortgage loan to Devon Energy Corporation. Each payment made to the Trust with respect to these properties is treated first as consisting of a payment of interest to the extent deemed accrued. This interest income is reported in Table 3. The basis in this royalty has been fully recovered, accordingly, the entire production payment received for 2007 will be treated as interest income. (iv) Original Issue Discount - Unitholders are required to report Original Issue Discount (OID) attributable to the Treasury Obligations as taxable income. 4

8 OID is generally the difference between the purchase price of the Treasury Obligation and its maturity value, allocated to the period the obligation is outstanding. The amount of OID reported to you on Form OID (the reportable OID ) has been calculated in accordance with IRS Regulations which assume the Treasury Obligations were purchased at original issue. Since the Trust did not purchase the Treasury Obligations at original issue, the amounts shown in Box 1 of the Form OID you received is not the correct amount to include in taxable income. Compute the correct taxable OID to report on your tax return by completing the appropriate schedules in this package. (v) Reporting OID Income - OID income is reported on line 8a, Form You must attach Schedule B, Interest and Dividend Income, which supports the amount shown on line 8a of Form 1040, since you will be reporting OID different than the amounts shown on Form OID. Complete Worksheet B to determine your taxable OID. To properly report OID, record separately the full amount of OID shown on each Form OID you received on Part I, line 1, of Schedule B. (A) If taxable OID (as computed on Worksheet B) is less than the amount shown on the Form 1099: 1) Subtotal all interest income listed on the Form 1099, 2) Below the subtotal, write OID Adjustment and show the OID you are not required to report, and 3) Subtract that OID amount from the subtotal and enter the result on line 2. (B) If taxable OID (as computed on Worksheet B) is greater than the amount shown on the Form 1099: 1) Subtotal all interest income listed on the Form 1099, 2) Below the subtotal, write OID Adjustment and show the additional OID, and 3) Add that OID amount to the subtotal and enter the result on line 2. (vi) Administrative Expenses - Administrative expenses paid by the Trust are reported in Table 4. As previously mentioned, administrative expenses for the 2007 tax year also include payments from the Trust to Devon as recoupment of overpayments made by Devon in prior years. See the quarterly distribution 5

9 announcements and the Trust financial statements (SEC filings) for additional details on the payments to Devon. (c) (d) Purchase Price Allocation. By acquiring Trust Units, Unitholders are deemed for tax purposes to have purchased a direct interest in the Treasury Obligations and the Trust assets. Unitholders are required to allocate their purchase price among the Treasury Obligations and each of the assets of the Trust based on the relative fair market value of such interests. Worksheet A is provided to assist in such an allocation for Units purchased in For Unitholders who purchased Units in prior years, the purchase price has already been allocated in a previous reporting booklet. Please note that a copy of Worksheet A should be maintained in your permanent tax records for use in the event Units are sold. Gain/Loss on Units Sold. Each Unitholder will realize gain or loss on the sale or exchange of Units measured by the difference between the amount realized and the adjusted basis for each Unit. For federal income tax purposes, the sale of a Unit will be treated as a sale by the Unitholder of a direct interest in the Treasury Obligations and each of the properties of the Trust. Therefore, gain or loss must be calculated for the interest in the Trust and Treasury Obligations separately. Gain or loss realized by a Unitholder who is not a dealer and has held the Units for more than one year will be treated as long-term capital gain or loss, except to the extent of depletion recapture amounts for the Net Profits Royalties, which will be treated as ordinary income. Gain or loss on Units held for less than one year, except to the extent of depletion recapture amounts for the Net Profits Royalties, will be treated as short-term capital gain or loss. Worksheet E is provided to assist in the calculation of gains or losses on the sale of Units. Gains and losses attributable to the Treasury Obligations will generally be reported on Schedule D of Form With respect to the Trust, gains to the extent of depletion recapture will be reported on Form Gains in excess of depletion recapture and all losses will generally be reported on Schedule D of Form See the instructions for Schedule D of Form 1040 and the instructions for Form 4797 for further information on proper reporting. (e) Gain/Loss on Sale of an Interest in the Net Profits Royalties. Each Unitholder will realize gain or loss on the sale by the Trust of an interest in the Net Profits Royalties. For federal income tax purposes, the sale by the Trust of an interest in the Net Profits Royalties will be treated as a sale by Unitholders of a direct interest in the Net Profits Royalties. Therefore, Unitholders must calculate gain or loss on the sale. Gain or loss realized by a Unitholder who is not a dealer and has held the Units for more than one year will be treated as long-term capital gain or loss, except to the extent of depletion recapture amounts, which will be treated as ordinary income. Gain or loss on Units held for one year or less, except to the extent of depletion recapture, will be treated as short-term capital gain or loss. Worksheets F1 and F2 are provided to assist in the calculation of gains or losses on the sale of an interest in the Net Profits Royalties by the Trust. Gains, to the extent of depletion recapture, will be reported on Form Gains in excess of depletion 6

10 recapture and all losses will generally be reported on Schedule D of Form See the instructions for Schedule D of Form 1040 and the instructions for Form 4797 for further information on proper reporting. (f) Tax Shelter Registration. The Trust has registered with the IRS as a tax shelter and the IRS has issued the Trust a tax shelter registration number which is set forth below. You must report the registration number (as well as certain other information) on IRS Form 8271, which must then be attached to the return on which you claim any income, deduction, loss, credit or other tax benefit. The tax shelter registration number issued to the Trust is Issuance of the tax shelter registration number does not indicate that this investment or the claimed tax benefits have been reviewed, examined or approved by the IRS. 2. Computation of Depletion Unitholders should determine their depletion allowance by taking the greater of cost or, if eligible, percentage depletion allowable. A Unitholder will be eligible for percentage depletion (an Eligible Unitholder ) if such Unitholder is an independent producer, which generally includes persons who are not substantial refiners or retailers of oil or gas or their primary products. (a) (b) Cost Depletion. Unitholders should utilize Worksheet C1 to calculate the appropriate amount of the allowable deduction for cost depletion. In calculating the cost depletion amount, Worksheet A of the current year and Worksheet D of the prior year will also be required. The depletion factors were obtained by dividing production for the year by beginning of the year reserves. Percentage Depletion. Percentage depletion is a statutory allowance generally equal to 15% of the gross income from production of a property, subject to a net income limitation which is 100% of the taxable income from the property (computed without regard to depletion deductions and certain loss carrybacks). However, percentage depletion is only available on the equivalent of 1,000 barrels of production per day. Eligible Unitholders should utilize Worksheet C2 to calculate the appropriate amount of the allowable deduction for percentage depletion (see additional comments below). Eligible Unitholders should note that the overall allowable percentage depletion deduction for a taxpayer is subject to several limitations. Certain Unitholders may not be entitled to the full deduction of percentage depletion on Trust income as calculated with this reporting package. Additionally, state rates of percentage depletion may vary from the Federal rate of 15%. Percentage depletion is generally only available to independent producers on the equivalent of 1,000 barrels of production per day. Other taxable income limitations also exist. Therefore, Unitholders should consult their tax advisor regarding their eligibility for percentage depletion as well as their overall allowable percentage depletion deduction for Federal and state income tax purposes. In this regard, Trust information on equivalent barrels 7

11 of oil and thousand cubic feet of gas (per Unit) attributable to Gross Net Profits Royalty Income has been provided in Tables 7A and 7B on page Reconciliation of Net Income and Cash Distributions The difference, if any, between the per Unit taxable income for the year and the per Unit cash distributions is reconciled in the section at the bottom of Worksheets 1 and 2. The reconciling items consist of items which are not currently deductible, such as increases in cash reserves established by the Trustee, and items which are not currently taxable, such as decreases in cash reserves and the principal portion of the production payments received. In addition, items which are included in taxable income or loss which have no cash impact are also reconciling items. This latter category includes the OID income recognized on the Treasury Obligations and the depletion deduction. 4. Adjustments to Basis Worksheet D has been provided to assist each Unitholder in tracking basis in the Units owned. Basis is increased by the amount of taxable OID interest income recognized by the Unitholder. Basis is decreased (not below zero) by the amount of depletion claimed and the amount of principal payments received with respect to the production payments. Basis is also adjusted by other miscellaneous items as indicated on Worksheet D. 5. Portfolio Income Royalty income is generally considered portfolio income under the passive activity rules. Therefore, Unitholders holding Units as an investment should not consider the taxable income from the Trust to be passive income in determining net passive income or loss. Unitholders should consult their tax advisors for further information regarding the passive activity rules. 6. Administrative Expenses Expenses of the Trust will include administrative expenses of the Trustee. Such expenses should be claimed as a deduction on Schedule E of Form 1040 as noted in Worksheets 1 and State Income Tax Returns Revenues from the Trust are from sources located in various states. A Unitholder may be required to file state income tax returns and/or to pay taxes in those states imposing income taxes. Unitholders may be subject to penalties for failure to comply with such requirements. Worksheet G has been provided to assist Unitholders in meeting state income tax filing requirements in each of these states. Unitholders should consult their tax advisors regarding state income tax filing requirements. 8

12 WORKSHEETS 9

13 GENERAL INFORMATION - WORKSHEETS The instructions below will assist you in completing the worksheets that follow. Each purchase and sale of a block of Units will require the completion of a separate set of worksheets for that block. (e.g., If you purchased 1,000 Units and later sold 500 of the Units, you would need to complete two separate sets of worksheets for each 500 Unit block.) You should therefore make copies of the worksheets if you purchased and/or sold blocks of Units on multiple dates. All calculations should be carried to 4 decimal places with the exception of daily taxable OID which should be carried to 5 decimal places. A. IF YOU BOUGHT UNITS AT THE INITIAL OFFERING ON NOVEMBER 19, 1992 AND HELD THESE UNITS THROUGH DECEMBER 31, 2007: 1. Complete Worksheet 1 to calculate your reportable amounts. Note that there is a Sample Worksheet 1 on page 14 completed for 100 Units for your convenience. 2. Complete Worksheet D to compute your ending basis in the Trust and Treasury Obligations. Note that Worksheet D from the prior year s Tax Information Reporting Booklet will be necessary to complete Worksheet D for the current year. 3. Complete Worksheets F1 and F2 to compute your gain or loss from the sale by the Trust of an interest in the Net Profits Royalties. 4. Refer to Worksheet G for information on reportable items for various states. B. IF YOU BOUGHT UNITS AT ANY OTHER TIME AND HELD THESE UNITS ON DECEMBER 31, 2007: 1. Complete Worksheet A to allocate your purchase price between the Trust and the Treasury Obligations if you purchased your Units during If you purchased your Units prior to 2007, this allocation was done in the year of purchase and Worksheet A does not need to be completed for the current year. 2. Complete Worksheet B to compute the amount of taxable OID. Remember that this may be different from the amounts reported to you on Form OID. See the discussion on page 5 for information on how to report the taxable OID on your tax return. 3. Complete Worksheets C1 and C2 to calculate your depletion deduction. 4. Complete Worksheet 2 to summarize and calculate your reportable amounts. 5. Complete Worksheet D to compute your ending basis in the Trust and Treasury Obligations. 10

14 Note that Worksheet D from the prior year s Tax Information Reporting Booklet will be necessary to complete Worksheets C1 and D for the current year if you purchased your Units in a prior year. 6. Complete Worksheets F1 and F2 to compute your gain or loss from the sale by the Trust of an interest in the Net Profits Royalties. 7. Refer to Worksheet G for information on reportable items for various states. C. REGARDLESS OF WHEN YOU PURCHASED UNITS, IF YOU SOLD ANY UNITS DURING 2007: 1. Complete Worksheet A to allocate your purchase price between the Trust and the Treasury Obligations if you purchased your Units during If you purchased your Units prior to 2007, this allocation was done in the year of purchase and Worksheet A does not need to be completed for the current year. 2. Complete Worksheet B to compute the amount of taxable OID for the sold Units through the date of sale. Remember that this may be different from the amounts reported to you on Form OID. See the discussion on page 5 for information on how to report the taxable OID on your tax return. 3. Complete Worksheets C1 and C2 to calculate your depletion deduction. 4. Complete Worksheet 2 to summarize and calculate your reportable amounts. 5. Complete Worksheet D to compute your ending basis in the Trust and Treasury Obligations. Note that Worksheet D from the prior year s Tax Information Reporting Booklet will be necessary to complete Worksheets C1 and D for the current year if you purchased your Units in a prior year. 6. Complete Worksheets F1 and F2 to compute your gain or loss from the sale by the Trust of an interest in the Net Profits Royalties. 7. Complete Worksheet E to compute your gain or loss on the sale of your interest in the Trust and the Treasury Obligations. See the discussion on page 6, Gain/Loss on Units Sold, for further information. 8. Refer to Worksheet G for information on reportable items for various states. 11

15 WORKSHEET 1 The following tax information reporting worksheet is for a Unitholder who purchased Units at the initial offering and held the same Units through December 31, Complete the worksheet by entering the number of Units owned and multiplying by the factor indicated. Unitholders completing Worksheet 1 should also complete Worksheets C1, C2, D, F1 and F2. All information should be retained as part of your permanent tax records. Investors who purchased or sold Units at any time after the initial offering should complete Worksheet 2 on page 16. A sample solution is on page 14 for your convenience. # OF UNITS FACTOR TOTAL REPORT ON FORM 1040: 1. Royalty Income X = $ Sch. E, Line 4 2. Ad Valorem Taxes X (0.0411) = ( ) Sch. E, Line Interest Income (OID on Treasury Obligation) X = Sch. B, Line 1 (See p. 3) 4. Interest Income (Production Payments) X = Sch. B, Line 1 5. Trust Administrative Expenses X (1.2782) = ( ) Sch. E, Line Depletion-[Larger of Worksheet C1 or C2, pages 22-23] X ( ) = ( ) Sch. E, Line 20 7a. Gain on Sale of an Interest in the Net Profits Royalties [Worksheet F1, page 28, line 3] X = 7b. Gain on Sale of an Interest in the Net Profits Royalties [Worksheet F2, page 29, line 3] X = 8. Net Taxable Income/(Loss) [Add/(Subtract) lines 1-7] $ See Sch. D and Form 4797 for Instructions See Sch. D and Form 4797 for Instructions 12

16 WORKSHEET 1 (continued) Reconciliation of Net Taxable Income to Cash Distributions: # OF UNITS FACTOR TOTAL 9. Net Taxable Income/(Loss) [Line 8 above] N/A X N/A = $ 10. Plus: Depletion [Line 6 above] N/A X N/A = 11. Less: OID Income on Treasury Obligations [Line 3 above] N/A X N/A = ( ) 12. Plus/(Less): Cash Reserves and Other X (0.0717) = 13. Plus: Basis from Sale of an Interest in the Net Profits Royalties* N/A X N/A = 14. Cash Distributions [Add/(Subtract) lines 9-13] X = $ * Please note, due to the dollar amount of the proceeds, there is not a basis allocation to the sold interest in the net profit royalties. Therefore, the entire amount of the proceeds is considered gain. 13

17 WORKSHEET 1 SAMPLE SOLUTION (For a Unitholder who purchased 100 Units at IPO) The following sample solution reporting worksheet is for a Unitholder who purchased 100 Units at the initial offering and held the same Units through December 31, Unitholders should also complete Worksheets C1, C2, D, F1 and F2. This information will be required in the event of a sale of Units. Investors who purchased or sold Units at any time after the initial offering should consult Worksheet 2 on page 16. # OF UNITS FACTOR TOTAL REPORT ON FORM 1040: 1. Royalty Income 100 X = $ Sch. E, Line 4 2. Ad Valorem Taxes 100 X (0.0411) = (4.11) Sch. E, Line Interest Income (OID on Treasury Obligation) 100 X = Sch. B, Line 1 (See p. 3) 4. Interest Income (Production Payments) 100 X = Sch. B, Line 1 5. Trust Administrative Expenses 100 X (1.2782) = (127.82) Sch. E, Line Depletion-[Larger of Worksheet C1 or C2, pages 22-23] 7a. Gain Sale of an Interest in the Net Profits Royalties [Worksheet F1, page 28, line 3] 100 X ( )* = (40.39) Sch. E, Line X = b. Gain Sale of an Interest in the Net Profits Royalties [Worksheet F2, page 29, line 3] 100 X = Net Taxable Income/(Loss) [Add/(Subtract) lines 1-7] $ See Sch. D and Form 4797 for Instructions See Sch. D and Form 4797 for Instructions * Amount in example is for illustration purposes only. Please see Worksheets C1 and C2 to calculate the applicable amount. 14

18 WORKSHEET 1 SAMPLE SOLUTION (Continued) Reconciliation of Net Taxable Income to Cash Distributions: # OF UNITS FACTOR TOTAL 9. Net Taxable Income/(Loss) [Line 8 above] N/A X N/A = $ Plus: Depletion [Line 6 above] N/A X N/A = Less: OID Income on Treasury Obligations [Line 3 above] N/A X N/A = (122.66) 12. Plus/(Less): Cash Reserves and Other 100 X (0.0717) = (7.17) 13. Plus: Basis from Sale of an Interest in the Net Profits Royalties N/A X N/A = Cash Distributions [Add/(Subtract) lines 9-13] 100 X $

19 WORKSHEET 2 The following tax information reporting worksheet is for a Unitholder who purchased Units at any time other than the November 19, 1992 initial offering. In addition, Unitholders who sold Units during the year should use this worksheet. Worksheets A, B, C1, and C2 should be completed prior to beginning Worksheet 2. Worksheets D, E, and F should be completed after completion of lines 1 through 6 of Worksheet 2. Numbers in brackets are references to the tables beginning on page 31. Complete the worksheet by entering the number of Units purchased and then multiplying by the factor obtained from the appropriate table. If a Unitholder bought and/or sold Units at multiple times, Worksheet 2 and corresponding Worksheets A through G will be required for EACH block of Units purchased and for EACH block sold at different dates. The information on each Worksheet 2 should then be combined on one Summary Worksheet 2, which will be reported on Form All information should be retained as part of your permanent tax records. # OF UNITS FACTOR TOTAL REPORT ON FORM 1040: 1. Royalty Income [Table 1, page 32] X = $ Sch. E, Line 4 2. Ad Valorem Taxes [Table 2, page 32] X = Sch. E, Line Interest Income (OID on Treasury Obligation) [From Worksheet B, page 21, line 5] X = Sch. B, Line 1 (See p. 3) 4. Interest Income (Production Payments) [Table 3, page 33] X = Sch. B, Line 1 5. Trust Administrative Expenses [Table 4, page 33] X ( ) = ( ) Sch. E, Line Depletion-[Larger of Worksheet C1 or C2, pages 22-23] X ( ) = ( ) Sch. E, Line 20 7a. Gain on Sale of an Interest in the Net Profits Royalties [Worksheet F1, page 28, line 3] X = 7b. Gain on Sale of an Interest in the Net Profits Royalties [Worksheet X = F2, page 29, line 3] 8. Net Taxable Income/(Loss) [Add/(Subtract) lines 1-7] $ See Sch. D and Form 4797 for Instructions See Sch. D and Form 4797 for Instructions 16

20 WORKSHEET 2 (Continued) Reconciliation of Net Taxable Income to Cash Distributions: # OF UNITS FACTOR TOTAL 9. Net Taxable Income/(Loss) [Line 8 above] N/A X N/A = $ 10. Plus: Depletion [Line 6 above] N/A X N/A = 11. Less: OID Income on Treasury Obligations [Line 3 above] N/A X N/A = ( ) 12. Plus/(Less):Cash Reserve and Other [Table 5, page 34] x = 13. Plus: Basis from Sale of an Interest in the Net Profits Royalties * N/A X N/A = 14. Cash Distributions [Table 6, page 34] [Add/(Subtract) lines 9-13] x = * Please note, due to the dollar amount of the proceeds, there is not a basis allocation to the sold interest in the net profit royalties. Therefore, the entire amount of the proceeds is considered gain. 17

21 WORKSHEET A Purchase Price Allocation Instructions Unitholders who purchased their Units during 2007 must allocate their purchase price between the Treasury Obligations and the Trust. This allocation is required for each block of Units purchased. In addition, a 2007 purchaser must further allocate the Trust amount among the Net Profits Royalties and production payments. Worksheet A will assist you in allocating your purchase price. You should retain this worksheet for future reference. Unitholders who purchased their Units in a prior year do not need to complete Worksheet A. Complete the Purchase Price Allocation schedule on page 19 using the following instructions: 1. Enter the total purchase price paid on line A. This price should include any commissions paid. 2. Enter the number of Units purchased on line B. 3. Divide the total purchase price by the number of Units purchased. Enter the result on line C. 4. Enter the fair market value of the Treasury Obligation from the table at the bottom of page 19 on line D. Select the value for the month during which the Units were purchased. 5. Subtract the fair market value of the Treasury Obligation from the Unit purchase price. Enter the result on line E. 6. In the column for Relative FMV, enter on line 1 the percentages obtained from the corresponding lines of the table at the bottom of page 19. Select the percentages for the month during which the Units were purchased. 7. Multiply the percentage on line 1 by the total fair market value of the Trust on line E and enter the result in the Allocated FMV column. Perform this calculation for line 2 as well. 8. Add the amounts on lines 1 and 2 under the Allocated FMV column and enter the result on line 3. The total must equal the amount previously entered on line E, the total fair market value of the Trust. 18

22 WORKSHEET A (continued) Purchase Price Allocation Instructions Purchase Price Allocation A. Total Purchase Price Paid (including commissions) B. Number of Units Purchased C. Purchase Price Per Unit (A B) D. FMV of Treasury Obligation per Unit E. FMV of the Trust per Unit (C less D) $ $ $ $ RELATIVE FMV ALLOCATED FMV MUST EQUAL 1. Net Profits Royalties 2. Wasson ODC Production Payment 3. Total (Add lines 1-2) % % 100 % $ $ $ 2007 Relative Fair Market Values Month Unit Purchased JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Treasury Obligations (Dollars) Trust Unit (Percentages): Net Profits Royalties 55.92% 56.28% 56.62% 57.11% 57.65% 58.14% 58.92% 59.75% 60.60% 61.48% 62.68% 63.79% Wasson ODC Production Payment 44.08% 43.72% 43.38% 42.89% 42.35% 41.86% 41.08% 40.25% 39.40% 38.52% 37.32% 36.21% Trust Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 19

23 WORKSHEET B Treasury Obligation OID Instructions Complete the schedule on page 21 to calculate the total amount of OID on the Treasury Obligations which is taxable to you. This worksheet is required for EACH block of Units purchased and/or sold. 1. Enter on line 1 the allocated FMV amount from Worksheet A, page 19, line D. If you purchased your Units prior to 2007, enter the value from the 2006 Tax Information Reporting Booklet Worksheet D, page 23, line 8, column Enter on line 2 the taxable OID factor for the month during which the Units were purchased from the table on the bottom of page 21. For Unitholders who purchased their Units prior to 2007, enter the factor from Worksheet B, page 19, line 2 of the 2006 Tax Information Reporting Booklet. 3. Multiply line 1 by the factor on line 2. Enter the result on line Enter the actual number of days you owned the Units during 2007 on line Multiply line 3 by line 4. Enter the result on line Carry the amount on line 5 to Worksheet 2, page 16, line 3, in the factor column. 7. Follow paragraph (v) on page 5 for instructions of reporting OID. 20

24 WORKSHEET B (continued) Treasury Obligation OID Instructions 2007 Taxable OID Income 1. Allocated/Adjusted Acquisition Price (line D of Worksheet A, page 19, if Units purchased in 2007; otherwise 2006 Worksheet D, page 23, line 8, column 1) 2. Taxable OID Factor (Table below or amount from prior year Worksheet B, page 19, line 2) 3. Daily Taxable OID (line 1 x line 2) [Round to 5 decimal places] 4. Number of days Units were owned during 2007 (Include the date of purchase but not the date of sale) 5. Total Taxable OID per Unit (line 3 x line 4) [Round to 4 decimal places] $ $ 2007 Taxable OID Factor Month Unit Purchased JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

25 WORKSHEET C1 Cost Depletion Calculation Worksheet Complete the following formula to calculate cost depletion per Unit on the Net Profits Royalties. For Units purchased during 2007, the Depletable Basis (per Unit) of your Net Profits Royalties equals the amount on Worksheet A, page 19, line 1 for the "Allocated FMV" column. For Units purchased prior to 2007, the Depletable Basis (per Unit) of your Net Profits Royalties will equal the amount from the 2006 Tax Information Reporting Booklet from Worksheet D, page 23, line 8, column 2. The cost depletion factor (per Unit) is then calculated by multiplying the Depletable Basis (per Unit) by the applicable Cost Depletion Rate from the table below. The result should be compared to the result from Worksheet C2. The greater of the two results should be entered on Worksheets 1 and 2, pages 12 and 16, respectively, line 6, in the factor column. This worksheet is required for EACH block of Units purchased and/or sold. COST DEPLETION DEPLETABLE RATE COST DEPLETION BASIS (SEE TABLE FACTOR (PER UNIT) BELOW) (PER UNIT) $ X = Cost Depletion Rates Per unit For Unit Purchased Last Date Prior to December 31 That The Unit Was Held In 2007 On/ But Not After Later Than Feb. 15 May 15 Aug. 15 Nov. 15 Nov. 19, 1992 Feb. 15, Feb. 16, 2007 May 15, May 16, 2007 Aug. 15, Aug. 16, 2007 Nov. 15, Nov. 16, 2007 Dec. 31, 2007 * Holders of record for Units purchased during this period received no cash distribution and, therefore, receive no allocation of taxable income or deductions, other than OID on the Treasury Obligations. 22

26 WORKSHEET C2 Percentage Depletion Calculation Worksheet Complete the following formula to calculate percentage depletion per Unit on the Net Profits Royalty Income. The percentage depletion factor (per Unit) is calculated by multiplying the applicable Gross Net Profits Royalty Income (per Unit) from the table below by 15%. The result should be compared to the cost depletion factor calculated on Worksheet C1. The greater of the two results should be entered on Worksheets 1 and 2, pages 12 and 16, respectively, line 6, in the factor column. This worksheet is required for EACH block of Units purchased and/or sold. GROSS NET PROFITS ROYALTY INCOME PERCENTAGE (PER UNIT) PERCENTAGE DEPLETION (SEE TABLE DEPLETION FACTOR BELOW) RATE (PER UNIT) $ X 15% = On/ After For Unit Purchased Nov. 19, 1992 Feb. 15, 2007 Feb. 16, 2007 May 15, 2007 May 16, 2007 Aug. 15, 2007 Aug. 16, 2007 Nov. 15, 2007 Nov. 16, 2007 Dec. 31, 2007* Gross Net Profits Royalty Income Per Unit Last Date Prior to December 31 That Unit Was Held in 2007 But Not Later Than Feb. 15 May 15 Aug. 15 Nov * Holders of record for Units purchased during this period received no cash distribution and, therefore, receive no allocation of taxable income or deductions, other than OID on the Treasury Obligations. 23

27 WORKSHEET D Basis in Trust Unit/Treasury Obligations Complete the following schedule to determine your basis per Unit in the Treasury Obligation and Trust. Follow the instructions for each line item as indicated. If a Unitholder bought and/or sold Units at multiple times throughout 2007, Worksheet D will be required for EACH block of Units purchased and for EACH block sold at different times. This schedule should be completed each year for each block of Units purchased as the information is required in the event of sale. Column 1 Treasury Obligation (per Unit) Column 2 Net Profits Royalties (per Unit) Column 3 Wasson ODC Prod. Payment (per Unit) 1. Purchase Price Paid [Worksheet A, page 19, line D and allocated FMV from lines 1, 2 and 3, respectively] $ $ $ $ OR 2. Beginning of Year Basis [From Worksheet D, page 23, line 8 of the 2006 Tax Information Reporting Booklet ] TOTAL 3a. Less: Basis for 2007 Sale of an Interest in the Net Profits Royalties N/A N/A N/A N/A 3b.Adjusted Basis (Add/(Subtract lines 1 through 3a) 4 Plus: OID Interest Income Factor [Worksheet 1 or 2, line 3] N/A N/A 5. Less: Depletion factor [Worksheet 1 or 2, line 6] N/A ( ) N/A ( ) 24

28 WORKSHEET D (Continued) Basis in Trust Unit/Treasury Obligations Column 1 Treasury Obligation (per Unit) Column 2 Net Profits Royalties (per Unit) Column 3 Wasson ODC Prod. Payment (per Unit) TOTAL 6. Plus/(Less): Cash Reserves factor [Worksheet 1 or 2, line 12] (divide by 2 and enter result in columns 2 and 3) 7. Per Unit basis [Add/(Subtract) lines 3b through 6] $ $ $ $ 25

29 WORKSHEET E Gain/(Loss) on Sale of Trust Unit/Treasury Obligation To determine the gain or loss on the sale of a Unit: 1. Enter the net sales receipts on line A of the Sales Proceeds Allocation schedule on page 27. This amount should be sales proceeds less any sales cost. 2. Enter the number of Units sold on line B. 3. Divide the net sales receipts by the number of Units sold. Enter the result on line C. 4. Enter the fair market value of the Treasury Obligations from the table at the bottom of page 27 on line D. Select the value for the month during which the Units were sold. 5. Subtract the fair market value of the Treasury Obligation from the per Unit sales price. Enter the result on line E. 6. In the column for Relative FMV, enter on lines 1 and 2 the percentages obtained from the appropriate lines of the table at the bottom of page 27. Select the percentages for the month during which the Units were sold. 7. Multiply the percentage on line 1 by the total fair market value of the Trust on line E and enter the result in the Proceeds column. Perform this calculation for line 2 as well. 8. Add the amounts on lines 1 and 2 in the Proceeds column and enter the result on line 3. The total must equal the amount previously entered on line E, the Sales Proceeds Allocated to Trust Unit. 9. Enter the allocated Sales Proceeds from page 27 in the appropriate column on line 1 of the schedule below. 10. Enter the amount from line 7, Worksheet D, for the Treasury Obligation on line 2, column A of this worksheet. Enter the amount from line 7, Worksheet D, for the Net Profits Royalties on line 2, column B of this worksheet. Perform this step for the Wasson ODC Production Payments as well. 11. Subtract line 2 from line 1 to determine the gain or (loss) per Unit. Multiply the result by the number of Units sold. Follow the instructions for reporting gain or loss on page 6, paragraph (d). Gain/(Loss) on Sale of Trust Unit/Treasury Obligation 1. Allocated Sales Proceeds per Unit [from Worksheet E, lines D, and 1 and 2 on page 27] Calculation of Gain/(Loss) Treasury Obligation (A) Net Profits Royalties (B) Wasson ODC Prod. Payment (C) $ $ $ $ 2. Basis per Unit [Worksheet D, page 25, line 7] 3. Gain/(Loss) on Sale per Unit [line 1 less line 2] 4. Number of Units sold 5. Gain/(Loss) on Sale (line 3x4) [For reporting, see page 6, paragraph (d)] $ $ $ $ TOTAL (E) 26

30 WORKSHEET E (continued) Gain/(Loss) on Sale of Trust Unit/Treasury Obligation Sales Proceeds Allocation Depletable Basis (per Unit) A. Total Sales Proceeds Received (less sales cost) B. Number of Units Sold C. Sales Price Per Unit (A B) D. FMV of Treasury Obligation per Unit E. Sales Proceeds Allocated to Trust Unit (C less D) $ $ $ $ RELATIVE FMV PROCEEDS MUST EQUAL 1. Net Profits Royalties 2. Wasson ODC Production Payment 3. Total (Add lines 1-2) % % 100 % $ $ $ 2007 Relative Fair Market Values Month Unit Purchased JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Treasury Obligations (Dollars) Trust Unit (Percentages): Net Profits Royalties 55.92% 56.28% 56.62% 57.11% 57.65% 58.14% 58.92% 59.75% 60.60% 61.48% 62.68% 63.79% Wasson ODC Production Payment 44.08% 43.72% 43.38% 42.89% 42.35% 41.86% 41.08% 40.25% 39.40% 38.52% 37.32% 36.21% Trust Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 27

31 WORKSHEET F1 Sale of an Interest in the Net Profits Royalties The following worksheet is provided to assist Unitholders in reporting gain or loss on sales of an interest in the Net Profits Royalties by the Trust during This worksheet is required for EACH block of Units if the Units were held on May 15, If the Units were not held on May 15, 2007, no gain or loss calculation is required. To determine the gain or loss per Unit on the sale of an interest in the Net Profits Royalties: 1. Enter the amount from Worksheet D, column 2, line 1 or 2, for the Net Profits Royalties, on line 2a of this worksheet. 2. Multiply line 2a by 2b and enter the amount on line 2c. 3. Subtract line 2c from line 1 and enter the results on line Follow the instructions for reporting gain or loss on page 6, paragraph (e). Please note, due to the dollar amount of the proceeds, there is not a basis allocation to the sold interest in the net profit royalties. Therefore, the entire amount of the proceeds is considered gain. Gain/(Loss) on Sale by Trust of an Interest in the Net Profits Royalties 1. Net Sales Proceeds per Unit a. Per Unit Basis in Net Profits Royalties [Worksheet D, page 24, line 1 or 2, column 2] 2b. Basis Allocable to Sold Interest in the Net Profits Royalties X c. Allocable Basis of Sold Interest in the Net Profits Royalties _ Gain/(Loss) on Sold Interest in the Net Profits Royalties [See page 6, paragraph (e) for reporting instructions of the gain/(loss).] $

32 WORKSHEET F2 Sale of an Interest in the Net Profits Royalties The following worksheet is provided to assist Unitholders in reporting gain or loss on sales of an interest in the Net Profits Royalties by the Trust during This worksheet is required for EACH block of Units if the Units were held on August 15, If the Units were not held on August 15, 2007, no gain or loss calculation is required. To determine the gain or loss per Unit on the sale of an interest in the Net Profits Royalties: 1. Enter the amount from Worksheet D, column 2, line 1 or 2, for the Net Profits Royalties, on line 2a of this worksheet. 2. Multiply line 2a by 2b and enter the amount on line 2c. 3. Subtract line 2c from line 1 and enter the results on line Follow the instructions for reporting gain or loss on page 6, paragraph (e). Please note, due to the dollar amount of the proceeds, there is not a basis allocation to the sold interest in the net profit royalties. Therefore, the entire amount of the proceeds is considered gain. Gain/(Loss) on Sale by Trust of an Interest in the Net Profits Royalties 1. Net Sales Proceeds per Unit a. Per Unit Basis in Net Profits Royalties [Worksheet D, page 24, line 1 or 2, column 2] 2b. Basis Allocable to Sold Interest in the Net Profits Royalties X c. Allocable Basis of Sold Interest in the Net Profits Royalties _ Gain/(Loss) on Sold Interest in the Net Profits Royalties [See page 6, paragraph (e) for reporting instructions of the gain/(loss).] $

33 WORKSHEET G State Tax Allocation Percentages The following worksheet is provided to assist Unitholders in meeting state income tax filing requirements. The allocation percentages represent the percent of the total of each item allocable to a particular state. The numbers in parentheses indicate the line number on Worksheet 1 or 2 to which the allocation percentages relate. The allocation has been determined by the source of each item. Unitholders should consult their tax advisors in regards to state income tax filing requirements. State (1) Royalty Income (2) Ad Valorem Taxes (3) Interest Income (OID) (4) Interest Income (Prod. Pmt) (5) Admin. Expense *** (6) Depletion Alabama 0.6% % 0.6% Arkansas 1.2% 1.0% % 1.2% California 20.4% % 20.4% Colorado 0.4% % 0.4% Kansas 2.1% 4.1% % 2.1% Louisiana 0.1% % 0.1% New Mexico 3.6% 0.3% % 3.6% North Dakota 0.7% % 0.7% Oklahoma 14.2% 1.3% % 14.2% Texas 53.8% 93.2% % 53.8% Wyoming 2.8% % 2.8% Federal % * Other % ** - - * Interest income (OID) from federal sources is generally not taxable by states. ** Interest income from the Production Payments is paid by Devon Energy Corporation, a Delaware corporation, from earnings on production in the state of Texas. *** Administrative expenses are incurred in the state of Texas. They are allocated to other states based upon total income (Royalties and production payment interest) generated within each state. NOTE: Unitholders should consult their tax advisors regarding state income tax filing requirements with respect to gains or losses from the disposition of Trust Units. 30